Estimating the Linkages Between Fuel Prices and Nitrogen Prices, Nitrogen Demand, and Cotton Production in Texas

Cotton producers have utilized fertilizer to enhance total production.  Research has shown a correlation between fuel and fertilizer prices.  This study estimates the interaction of external factors including fuel prices on the price of fertilizer and thus the demand for fertilizer and total cotton production in Texas.  All three equations, price of nitrogen fertilizer used in cotton production in Texas, demand for nitrogen fertilizer in Texas cotton production, and the total production of cotton in Texas were estimated using a double-log specification.  Results of the study indicated that as the U.S. diesel price multiplied by the price of natural gas in the U.S. increased by one percent, the price of nitrogen fertilizer increased by 0.3639 percent.  Further, as the U.S. diesel price multiplied by the price of natural gas in the U.S. increased by one percent, the demand for nitrogen fertilizer in Texas decreased by 0.3011 percent.  Finally, as the U.S. diesel price multiplied by the price of natural gas in the U.S. increased by one percent, the total cotton production in Texas decreased by 0.1289 percent.  While these results do suggest that the price of fertilizer, quantity demanded of fertilizer, and cotton production are not extremely responsive to changes in fuel prices, results also indicate that changes in fuel prices are statistically significant in affecting nitrogen prices, demand, and cotton production.